Samsung to Boost Production With Debt Offering

The South Korean chip maker is trying to raise $1 billion through a bond sale.

Olivia Oran

NEW YORK (TheStreet) -- Samsung Electronics is trying to raise $1 billion in its first overseas bond offering in 15 years as it seeks to expand production of its chips in mobile devices.

The company plans to use the proceeds to boost the capacity of Samsung's Austin, Texas-based plant, which reportedly makes chips for Apple(:AAPL) products.

Samsung is just the latest in a string of tech companies that have recently turned to bonds for capital, rather than relying on their own cash hoards. Google(:GOOG) issued its first bonds ever in May of last year, while Dell(:DELL) and Texas Instruments(:TXN) also completed offerings.

While tech companies have historically shied away from bonds, they are likely attracted to low corporate interest rates, said Moody's analyst Richard Lane.

"If you can get rates for under 2% pre-tax, that is quite attractive when you talk about returns on capital you're looking to achieve," he said.

The yield on the benchmark 10-year Treasury bonds fell to 1.89% on Jan. 13, according to the U.S. Department of the Treasury, down from 3.34% at the same time last year. Corporate bonds are pegged against Treasuries, meaning a fall in Treasury bond rates results in cheaper corporate borrowing.

Companies flush with cash, in turn, might look to borrow even if they don't need to. Samsung has around $19 billion of cash on its balance sheet.

Samsung may be looking to bolster chip production and drive innovation in its Austin-based facility as demand for Apple-based products grows.

Last year, the South Korean company began developing chips made with 20-nanometer technology, which consumes less power and is more energy efficient than its older generation products. But creating these types of chips requires significant investment in R&D and production capabilities.

"The name of the game in chips is small, but they're more expensive in terms of the type of gear you need for the factories," said Carl Howe, vice president for data sciences research at Yankee Group.